How to deliver tax relief for Canadian families

In the 1960s, my mother's monthly family allowance cheque paid for a week's groceries.

In 2011, the median Canadian two-parent family had an income of just over $90,000. At that level of net income, a family with two children receives Canada Child Tax Benefit worth $87 per month. That doesn't come close to paying for a week's groceries.

The Harper government has already gone some way to providing greater tax recognition for the costs of children through the introduction of the Universal Child Care Benefit and the introduction of a non-refundable child amount credit. Both of these are good policies.

Yet they are overlaid upon a CCTB system that contains fundamental flaws.

First, because the CCTB is clawed back as a family's net income increases, it does not provide generous support for a typical two-parent family in Canada's major cities. I think of my niece and her husband, who are about to give birth to their first child. Yes, their household income is reasonably high - but they has to pay for the cost of housing in Vancouver. It will be really tough for them to manage. Financial support that paid for a week's groceries would make a real difference to them.

Second, CCTB clawbacks increase the marginal tax rates faced by parents of children - and high marginal tax rates have efficiency costs.

Third, the CCTB is based on net family income. The income calculation is the same for two-parent and one-parent families. This can create a non-trivial marriage penalty for low income individuals. For example, if an Ontario single parent with net income of $30,000 marries someone at the same income level, she would loose close to $500 per month in CCTB (calculated using the CCTB calculator here).

Income splitting would be one way to deliver increased benefits to families. But it does not recognize the amazing diversity of ways that Canadian families come together to raise their children - the grandparents who spend their retirements pushing strollers, the parents who juggle shifts so that someone is always home for the kids, the single parents and blended families and other complexities of modern life.

The best way to support families with children is to give money to families with children.

I would advocate doing so through a new program, that combined the best features of the CCTB and UCCB, and supported Canadian families.

Your niece would get both the CCTB and UCCB if their income was 90k, making the monthly benefit $187, which should be much more than 1 week of groceries for 3 people. Was the median family income in 1960 over $11,100? If it wasn't the same then the comparison is moot anyway.

The CCTB does increase your income, because it is income. Overall it's still a net benefit, even if their taxes are slightly more. Extra dollars are always better than not having extra dollars.

The CCTB is based on family income and in your example the single person who is now no longer single has gone from 30k to 60k of income for their family, there is no loss, but rather a lesser need of financial support. Also, Why is the single parent automatically always female? I know statistically it's more likely but would it really hurt the point just say 'the person' or 'they'?

Though, I agree having both the CCTB and UUCB it would be more efficient just to have one combined program that handles it all, I'm not really following any of these arguments as legitimate criticisms.

Regarding your first point: housing is close to a zero-sum game in Vancouver. Housing supply is mostly capped*, so giving your niece enough money to live in Vancouver just means she'll bid up prices enough to force someone else out.

I completely agree with the rest, but handing out money isn't a solution for our high housing costs.

*Really, it is. 80% of the residentially zoned land in Vancouver is zoned exclusively for single-family homes and a handful of duplexes - and the owners of $2M homes fight tooth and nail to keep apartments out. Municipal politicians have very little incentive to allow additional supply. Some areas are exceptions to this rule, but not many.

Just to play devils' advocate, is it the role of government to subsidize having children? Or is there something to be said for telling people that they're responsible for their own children.

To my mind the two principled responses (the unprincpled one is that families with children vote) are (i) that there is a public interest in encouraging Canadians to have more children (perhaps to pay for all those unfunded liabilities governments have rung up) and (ii) given that people have children, whether or not they can afford them, the state has an obligation to help those children (if not their parents) to ensure that they can become productive citizens. There may be others rationales, but those are the two that come to mind.

The interesting thing is that those responses would suggest different government programs to support children. The first, presumably, would suggest a universal subsidy for children - we want more, we don't care who has them. The latter would suggest a targeted subsidy at poorer children - they're the ones who the government has to support. Funny how the UCCB and the CCTB seem to be ideal policy responses to these different policy rationales for subsidizing children.

Hi Stephen, I bet that once baby is born , your niece and nephew # 1 challenge will be what to do ? Stay home or go back to work ?
Guess what, they will choose to return to work as there are used to a nice lifestyle in Vancouver.
So what are they going to do in terms of childcare ?
Childcare support is an absolute top priority for young families and totally ignored by the current government.
And childcare, or , lack therefore and complete ignorance by government will bite them in the 2014 election.

Having and raising children has been painted recently as sort of a hobby that Canadians should undertake in their off hours. But in reality, Canadians make this place Canada, and as we get old and die, we need to be replaced, if only so Canadian businesses still have an employee and customer base. /snark

In truth, native born Canadians are no longer being born faster than existing Canadians are dying, and the only population growth now is through immigration. And from a cost-benefit standpoint, I can see why a government or business community would go along with that. Importing healthy, adult, educated new citizens is a whole lot cheaper than raising them here. That they can also make these valuable new citizens pay to come here is just another scoop of whipped cream on the cake.

Flora - "Childcare support is an absolute top priority for young families and totally ignored by the current government."

Fair enough, and quite a few people are arguing for increasing the Child Care Expense Deduction. The NDP child care plan, which is modelled more on Quebec, would be unlikely to help my niece, though, because she and her partner do shift work.

With child care, there are two issues: provision and finance. The issue isn't just the cost of care - it's being able to find a good quality environment where someone will care for your kids.

Right, but 20 years olds are people too (or so I'm told), so why don't we have a universal twenty-year old care credit (UTYOCC). They probably WOULD spend it on beer and popcorn. There has to be some other story as to why treat children (young children) differently.

"A family with children has lower ability to pay taxes than a family without children at the same income level."

Thats's true, I suppose, so that would suggest it's not so much a subsidy, but an adjustment to the tax system to reflect real economic power. On the other hand, to the extent that one thinks that people derive pleasure or meaning from having children (which, granted, is not obvious when they wake me up at 5 in the morning to play with their Ipad), one might characterize the choice to have children as just a different consumption decision (and probably a better one than beer and popcorn).

I don't really have any objection to the UCCB or the CCTB, since I think they can be rationaly justfied on a number of grounds, but I do think we have to question why we're implementing child focussed policies and constantly rationalize them. Ms. Lovejoy's "won't someone think of the children" rationale doesn't cut it.

> We don't say to people who are old and infirm and unable to work "is the role of government to subsidize you?" Why do we say that to children?

Actually, didn't we do just that? The answer between CPP (as an originally mostly-paygo pension), OAS, and GIS is "yes" -- senior poverty is socially unacceptable.

@Bob Smith:

> Just to play devils' advocate, is it the role of government to subsidize having children? Or is there something to be said for telling people that they're responsible for their own children.

This is actually a very legitimate question.

In earlier society, the answer was "no", but that was mitigated in part because of the nature of the economy. In a more-agrarian society with more home production, children were providing economically useful services: they acted as household and farm labour, and they were socially obligated to provide care for aging parents

In more modern days, we find child labour to be socially unacceptable. Parents have an increased legal duty of care towards their children, but no legal ability to extract economically valuable labour in return. Children are in school from age 6 until they form their own adult households, and in the meantime parents are expected to fund their own retirement through the market.

As if that's not enough, households are expected now to find much more of their consumption via the market -- few people grow and preserve their own fruit, for example. But as we know, families with children face a choice between withdrawing some of their labour from the market and seeking expensive, market-rate child care.

The marginal cost of a child, especially a first child, is tremendous for reasons that are innately tied up in our modern organization of society. Our first reaction has been to suggest that fewer families should have (as many) children (note how disparaged teen pregnancy is), but it's reasonable to suggest that we're having fewer than a socially-optimum number of children as a result.

The intrinsic dis-economies of scale are a problem. It's also not an industry amenable to increased productivity through technological innovation. Not yet anyway. Maybe one day we'll be able to put a few hundred bar coded kids in a warehouse and have a robot mind them, but until them, we'll just have to pony-up.

Sounds like you want the Canadian government to to offer real equity to parents of children - that real equity being a week's worth of groceries. But you don't want the Canadian government buying those groceries on behalf of parents (realizing an economy of scale) or instituting price controls on groceries to make sure that $87 buys a week's worth? How is that achieved?

"Tax Relief" is neo-con propaganda. It's another way of saying "starve the beast." (As the salesmen say: never give a dog a bad name.) Since the wealthy make most of the income they pay most of the taxes and hence get most of the "relief." Before Mulroney and Reagan the top tax rate was 70%. No doubt after 35 years of continuous tax cuts, they still see taxes as a burden. But the vast majority of Canadians have other burdens.

They would probably prefer benefits relief. After decades of corporate downsizing — facilitated by ersatz technocrats at the Bank of Canada — they are working more for less real income and benefits. During the Keynesian era (1945-1980), incomes grew along with GDP-per-capita. So in order to ensure all segments of society benefit from GDP and productivity growth — getting their fair share of the economic pie like back in the Keynesian days — better public benefits are in order.

(When people actually have more money in their pockets it boosts the economy with more spending & saving — in short, it puts scarce economic resources to more effective use that in the pockets of the rich.)

Currently we collect about 30.4% GDP in tax revenues down from an average of 35.3% in the 1990s. That's over $92-billion a year of scarce resources thrown away that could be put to much better use.

The neo-classical economists were wrong (whether neoliberal or New Keynesian.) Their free-market reforms did not bring prosperity, they brought the opposite. From 1950 to 1980 the economy grew 289%. From 1980 (when labor-busting monetary reforms began) to 2013, the economy grew by 124%. Annualized, this is 4.64% to 2.47% GDP growth. If I'm not mistaken, a huge drop in growth does not meet the criteria for "prosperity."

If the economy had grown at the Keynesian rate from 1980, the size of the economy would be $3.27T instead of $1.88T. At 30.4% tax revenues, that would gives us a $400-billion surplus. Imagine the tax relief!

"Currently we collect about 30.4% GDP in tax revenues down from an average of 35.3% in the 1990s"

And slightly above where we were in 1980, and above where we were during the alleged glory days of Keynesian planning of the 50's and 60's for which you pine. If you want to return Canada's tax policy to the 1960's, by all means, just let me know what programs to cut. That's the downside of cherry picking your statistics from public sources - it's easy to point out the cherry-picking.

"No doubt after 35 years of continuous tax cuts, they still see taxes as a burden. But the vast majority of Canadians have other burdens."

Funny how "35 years of continuous tax cuts" means, for you at least, increasing tax revenue as a precentage of GDP from 30.2% to 35.9% over over 19 years, then decreasing it back to 30.4% over the last 15 years or so. More people would interpret those words differently.

"Funny how "35 years of continuous tax cuts" means, for you at least, increasing tax revenue as a precentage of GDP from 30.2% to 35.9% over over 19 years, then decreasing it back to 30.4% over the last 15 years or so. More people would interpret those words differently."

The whole problem is that GDP growth slowed from 4.64% during the Keynesian era to 2.47% during the second free-market era. (It's not coincidental that both free-market eras culminated in global economic meltdowns followed by never-ending slumps...) Since spending requirements didn't shrink as the economy grew slower, they took up a bigger part of the pie and required higher levels of taxation.

As I already pointed out, if it weren't for failed free-market ideology, we would be sitting on a $400-billion surplus. Then there would be plenty of room for spending and tax cuts.

We need to return to the center to produce strong GDP growth. When the rich hog up all the money, it's like a garden filled with weeds hogging up the sunlight, water and nutrients. The economy is more efficient and prosperous when economic resources are better distributed among the people - not equality of income, but equality of opportunity based on moderate levels of inequality (as we had during the Keynesian era.)

Who knows how much more failure is required before we come to our senses...

Just so I'm clear. You characterize an increase of taxes equal to 0.2% of GDP as being the end result of 35 years of continuous tax cuts. Odd concept of tax cuts. Of course, you acknowledge that that claim was ridiculous by saying that we had to have higher levels of taxation to fund spending then we would have if GDP had grown faster.

Nobody disputes the desire to produce strong GDP growth (although it's worth keeping in mind that the post 1970 GDP growth is really a reversion to the long-term norm, making the 1945-1970 era a bit of an anomaly). Your thesis for why GDP growth has slowed has the disadvantage of being ahistorical (slowing growth started a decade before the purported free-market revolution, and seems to have occured in countries where free-market reforms occured (US, UK, Canada) and where they didn't (Japan, Germany, France, Italy)). But then why let facts get in the way of a good theory?

"You characterize an increase of taxes equal to 0.2% of GDP as being the end result of 35 years of continuous tax cuts."

Clearly you are incapable of comprehending the simple math behind economic growth. As I have already explained, if we maintained the levels of growth of the Keynesian era (1950-1980) our economy would be $3.27 instead of $1.88T. With that size economy, 30.4% GDP would yield $994B in revenues as opposed to the current $572B. At $3.27T we would only need 17% GDP to raise $572B.

Therefore slower growth over time means a higher tax rate is required to make up the difference. It would be smarter to recoup the $90B in tax cuts since the end of the 1990s and invest that money in social capital and infrastructure. (35% GDP tax revenues is average among the top 25 OECD economies.) That would spur growth as it did in the Keynesian era.

An example of Keynesian economics: Republican president Dwight Eisenhower raised taxes on the rich to 91% to fund the construction of the interstate highway system. Today he would be considered a commie by free-market ideologues.

One of the things accomplished by reckless tax cuts for the rich, aside from dampening GDP growth and creating a smaller economic pie, was raising inequality. Income shares for the 1%, 0.1% and 0.01% doubled, while real incomes fell for the bottom 90%. During the Keynesian era, incomes rose along side GDP-per-capita.

All countries went through a number of free-market reforms. France recently tried to restore the highest tax bracket to 70% — where it was in Canada and America before Mulroney and Reagan — and the "socialist" government was met with fierce opposition.

Friedman monetarism also helped destroy the economy. This developed into arbitrary 2% inflation targeting by the 1990s. The Great Moderation turned out to be a boom-to-bust bubble economy. First the dot com bubble. Then the housing/derivatives bubble/meltdown. By using monetary policy alone to fight inflation, and being too aggressive, bankers needed to make risky bets to get the same level of return that a normal growth economy would produce. By the 2000s, GDP growth was all but dead. Then the economy collapsed in 2008. Trickle-down Friedman helicopter money is making bankers big profits, but it is doing little to produce a recovery 6 years and counting.

As Piketty points out, there is a strong relationship between inequality and the rate of return on investments being higher than the rate of growth. The Keynesian era produced very high GDP growth and unprecedented living standards because it ensured low levels of inequality through progressive taxation and moderate redistribution of wealth through democratic government spending. All the real-world evidence suggests it was no anomaly. (Of course, if one lives in the dismal fantasyland of flaky economic models founded on absurd assumptions, it would be as impossible to grasp the obvious facts as a Christin Fundie trying to understand the theory of evolution.)

It's hard to take any of your assertions at face value, given some of the obvious factual errors.

"As I have already explained, if we maintained the levels of growth of the Keynesian era (1950-1980) our economy would be $3.27 instead of $1.88T. With that size economy, 30.4% GDP would yield $994B in revenues as opposed to the current $572B. At $3.27T we would only need 17% GDP to raise $572B."

How do you characterize tax increases as 35 years of continuous tax cuts. You made a statement that was factually false, and now you're trying to rationalize by with the claim that taxes would have been lower if growth had been faster. That made be true, but I don't see how that validates your claim that Canada has experienced 35 years of continuous tax cuts.

Of course, you subsequently modify the claim that developed countries have cut taxes since the late 1990's. Its certainly true in Canadas case. It's also certainly true that real incomes of Canadians (at all income levels) have increased significantly since the mid-1990's.

"One of the things accomplished by reckless tax cuts for the rich, aside from dampening GDP growth and creating a smaller economic pie, was raising inequality. Income shares for the 1%, 0.1% and 0.01% doubled, while real incomes fell for the bottom 90%. During the Keynesian era, incomes rose along side GDP-per-capita"

Isn't it a problem for you that income inequality within developed nations has increased more or less globally, independent of changes in tax policy. Isn't it even more of a problem that the increase is a function of changes in pre-tax, not after-tax, income? Doesn't that suggest that something, other than tax policy, has driven increased inequality (um, globalization, technology change, assortative mating, changes in family structure).

" All countries went through a number of free-market reforms. France recently tried to restore the highest tax bracket to 70% — where it was in Canada and America before Mulroney and Reagan — and the "socialist" government was met with fierce opposition."

If France, the land of the heavily-regulated work force, the 35 hour work week, the hefty payroll tax, is your example of country that has been through a "number of free-market reforms", perhaps we should question what you mean by "free-market" reforms?

"The Keynesian era produced very high GDP growth and unprecedented living standards because it ensured low levels of inequality through progressive taxation and moderate redistribution of wealth through democratic government spending"

Again, it's nice to have a theory that's unfounded in fact. Most of the decline in inequality in the 1950's and 60's (and subsequent increase in inequality since) didn't come about as a result of changes in government redistribution (government spending, as a percentage of GDP was significantly less than it is now), it came about as a result of greater equality in market incomes. Might you consider the possibility that that was caused by higher GDP growth, not the other way around - it's easier to divvy up a faster growing pie.

"Friedman monetarism also helped destroy the economy"

Hyperbole much?

"Trickle-down Friedman helicopter money is making bankers big profits, but it is doing little to produce a recovery 6 years and counting"

Really? The US, which has been following Friedman's monetary policy prescriptions, has been doing much better than the EU, which has not (due to the tight money policies of the ECB and, more particuarly, Germany). It's worth noting that the big break in the Great Depression was not fiscal policy, but the abandoment of the gold standard by the UK, the US, Germany and later France (the abandoment of the gold standard being the "helicopter money" of its day).

"It's worth noting that the big break in the Great Depression was not fiscal policy, but the abandonment of the gold standard by the UK, the US, Germany and later France (the abandonment of the gold standard being the helicopter money of its day)."

Fiscal policy was constrained by a gold standard.

http://en.wikipedia.org/wiki/United_States_Note

"Legal tender status guaranteed that creditors would have to accept the notes despite the fact that they were not backed by gold, bank deposits, or government reserves, and bore no interest. However, the First Legal Tender Act did not make the notes an unlimited legal tender as they could not be used by merchants to pay customs duties on imports and could not be used by the government to pay interest on its bonds."

"The Act did provide that the notes be receivable by the government for short term deposits at 5% interest, and for the purchase of 6% interest 20-year bonds at par. The rationale for these terms was that the Union government would preserve its credit-worthiness by supporting the value of its bonds by paying their interest in gold. Early in the war, customs duties were a large part of government tax revenue and by making these payable in gold, the government would generate the coin necessary to make the interest payments on the bonds."

The big break in the Great Depression is that in 1933 the federal government no longer made interest payments on it's debt in gold and did not require custom duties to be paid in gold.

"How do you characterize tax increases as 35 years of continuous tax cuts. You made a statement that was factually false"

There have been 30 years of tax cuts: from Mulroney's income tax cuts to Harris's. To Chretien's corporate tax cuts to Harper's. Etc. These costly tax cuts gave the wealthy the most benefit — and none were reversed. There have been tax increases, like on sales taxes and the VAT — the VAT gives the poor and rich a break, but soaks middle-income earners.

'By the centre's calculations, the top one per cent of Canadian families — those earning at least $266,000 — paid 30.5 per cent of their income in taxes in 2005. That was less than any other income group — even the lowest.'

"Of course, you subsequently modify the claim that developed countries have cut taxes since the late 1990's. Its certainly true in Canadas case. It's also certainly true that real incomes of Canadians (at all income levels) have increased significantly since the mid-1990's."

Actually, the Bank of Canada moderated wages from 1980 to 1995 with inflation-fighting interest-rate hikes. One can see the relationship between interest rate hikes and falling income and employment.

But it's a fallacy incomes significantly increased after that. By looking at real median earnings in CANSIM 202-0101 by male and female, real male earnings, which were $42,700 in 1980 fell to a low of $35,300 by 1996. They rose to $38,000 by 2008. But fell after the meltdown fell back to $36,600 in 2011. (BTW, did Stats Can stop updating these series due to Harper's spending cuts? If so, money well saved!)

Of course, female earnings rose the entire time, but are so far below male earnings they can only be described as shameful.

"Most of the decline in inequality in the 1950's and 60's (and subsequent increase in inequality since) didn't come about as a result of changes in government redistribution (government spending, as a percentage of GDP was significantly less than it is now), it came about as a result of greater equality in market incomes."

Again, one has to take into account that we had half the economic growth over the past 35-year free-market era than during the Keynesian era. So it's worthless measuring against GDP. Would need to examine social spending of different forms, as well as infrastructure spending, in real-dollars per capita. Something I plan on looking into.

But the obvious fact is that we've had 35 years of budget constraints due to Friedmanian monetary policy and tax cuts for the rich which have led to rising government debt despite numerous social spending cuts.

So not only did more government investment in public benefits, social capital and physical infrastructure raise living standards and boost GDP in Keynesian era, the rising influence of unions also played a big part.

Over the past 35 years, real earnings have fallen. Also corporate downsizing has meant people have less private benefits as well. Skyrocketing private debt is the result of people clinging to the high living standards of the past through borrowing. When the deleveraging begins, the economy will take another beating.

"'Trickle-down Friedman helicopter money is making bankers big profits, but it is doing little to produce a recovery 6 years and counting'"

"Really? The US, which has been following Friedman's monetary policy prescriptions, has been doing much better than the EU, which has not (due to the tight money policies of the ECB and, more particuarly, Germany)."

It is not hyperbole to point out we've suffered from the worst economic collapse since the Great Depression. And we're not out of the woods yet.

When the Fed raises interest rates next year, before the economy shows any real signs of overheating, let alone recovery, it could trigger another recession. Then we are in real trouble. Or we could go through another bubble boom-to-bust economic cycle, which seems most likely given incomes are falling in the US and there isn't adequate demand to sustain a normal recovery.

But clearly it's ridiculous to claim 6 years of helicopter money as a success, especially for a maybe recovery. As Joseph Stiglitz points out in "Inequality," little of the helicopter money has tickled down into real-world economy through business expansion and innovation.

The euro-zone is in an impossible situation because of the common currency. The ECB's overzealous inflation targeting in 2011 caused near-recession growth in 2012 & 2013.

"It's worth noting that the big break in the Great Depression was not fiscal policy, but the abandoment of the gold standard by the UK, the US, Germany and later France (the abandoment of the gold standard being the "helicopter money" of its day)."

This revisionist history goes beyond Friedman, does it not? As far as I know, Friedman claimed helicopter money *would've* ended the Great Depression.

But of course, government spending, even on a world war effort, can have no effect on the economy. That's because people save an equal amount of money in anticipation for future tax increases, which cancels it all out… If we had implemented free-market reforms in the post-war era, GDP growth would've averaged 10% instead of a measly 4.7%! The 2.5% growth we had during the past 35-year free-market comeback was clearly an anomaly…

I read the conclusion that the best way to support families with children is to give money to families with children, but this is not the end as there is not a single family, there are lots of people who involve in this type of situation.